Brexit is part of a larger drama of centralization versus pluralism

Charles P. Kindleberger’s very last book-length effort was the slim volume titled Centralization versus Pluralism, a historical examination of political-economic struggles and swings within some leading nations (1996). In his frame, the historical struggles and swings he recounts–in the Dutch Republic, Germany, France, Britain, Canada, The United States, Japan and China–were all driven by a fundamental contradiction between the logic of economics and the logic of politics.

From a simple-minded [economic] viewpoint, the world is the optimum economic area, with its constituent countries committed to free trade, a single international currency, and harmonised standards, whereas the optimum social area is much smaller, and based on the criterion that a social unit should be small enough for an individual to know that he or she counted.

The record of history, at least within individual nations, seems to be about swings between each of these separate logics, now one way and now the other, with no sense that one is a more fundamental force than the other.

Under normal circumstances, however defined, but with economic and social change occurring slowly, there is a strong preference for pluralism….When a society is confronted with crisis, it is usually desirable, and in some cases necessary, to shift power to the center, especially if it has been widely dispersed. Such shifting, however, is not readily accomplished, and may not be possible at all because of institutional inertia.

Kindleberger’s book is about the historical experience within individual nation states, but it is clear that his underlying motivation is to provide some “food for thought” (p. 9) about the future of the European Union, a feat of social engineering that was always close to his heart.

On Brexit, he would say what we are seeing is both rise of centralisation and pluralism:

Once upon a time, London was not only the center of Britain, but also of the entire British Empire, and as such the unchallenged world financial center in the 19th century, only replaced by New York after WWII. And even today London remains a critical node in the financially globalized world that now challenges merely national structures of governance. The global money market, the eurodollar market, grew up in London because New York (or more accurately, Washington DC) didn’t want it, and that seems likely to continue.

Before Brexit, arguably London was to Europe as Singapore was to Asia, a financial window on the larger world. Europe could thrive despite incomplete banking union, and unrealized capital market union, because of London. Post-Brexit, the pressure to complete these unions will be much stronger, and that is a pressure for centralization. But Europe will likely still need its Singapore.

What would Charlie say about Brexit? He would, I think, see it as just one episode in the larger and on-going drama of centralization versus pluralism. Indeed it involves at the same time both increasing centralization andincreasing pluralism, at different levels of the system. We are living in a very dynamic period, but it is not chaos. Kindleberger gives us a frame to understand the logic driving the world-historic events outside our window.